Thinking about the Social Enterprise and Flow

My grandfather appears to have grown up in a village in southern India, attended university in what was then Madras, worked as “private secretary” to one of India’s richest men and biggest landowners, the Maharaja of Darbhanga, all on his way to founding a weekly magazine, called Indian Finance, in Calcutta in 1928. He died when I was sixteen months old, and he was succeeded by my father. So I grew up in a home full of books, where reading and writing and publishing put food on the table and, occasionally, even paid the bill.

It was an interesting business, with some very unusual approaches to vertical integration. The family owned the printing press. Made sense. If your livelihood depending on somebody printing, publishing and distributing what you write, then you’d want to own a printing press: the internet hadn’t been built as yet. The family also appeared to have significant stakes, perhaps ownership, in a canteen. You employ a lot of people, they need subsidised food, it made sense to own what must have been a precursor to the modern office cafeteria. But it didn’t appear to be that common in small family-owned businesses in the ’60s.

And there was an ad agency stuck in there somewhere. For the life of me I could not figure out whether we owned the agency, had shares in it, had a strategic alliance, or what, but there was a relationship. So when I was growing up, it looked like we “owned” a magazine, a printing press, a canteen and an ad agency. The set-up gave me some firsthand experience of what Ronald Coase was on about, in terms of the theory of the firm, transaction costs and vertical integration. [Amazingly, Ronald Coase is still alive. I would so love to meet him and talk to him!].

Which brings me to the point of this post.

As a child I used to have the run of the place, driving people insane with my constant questions “Why?”. I couldn’t help it, I was curious. One of the things I was curious about was the fact that every now and then, a parcel would arrive from Air India. And it contained tickets. Which was very strange, because I’d never known anyone who worked for Indian Finance travel abroad. And Air India did nothing but travel abroad, domestic travel used to be the sole domain of Indian Airlines in those days. So why were we buying the tickets? For what and for whom?

Nobody there seemed to know. Which meant that I had to ask my dad. It wasn’t the asking that was difficult, it was the remembering to ask. So many questions, so little time. Yet one day I did.

It turned out that the answer was simple. We wanted Air India to advertise in the magazine. They didn’t have the budget to do it…. as long as we wanted to be paid in cash. They were short cash. And they were long airline seats. So if we were prepared to be paid in airline seats, they would advertise. And so they did.

I have no idea whether my father pitched it to them or whether they pitched it to us, but the deal was done. And we kept getting tickets. Which somehow got used up.

Years later I went to university. Studied economics. Started writing stuff about banking and finance. Tripped and fell into computing in 1980. And here I am, 32 years later.

Fast forward to the 1990s. Lots of stuff published about the internet, increasing-returns models, “holonic” organisations, incubators and ecosystems. That’s when I first met Don Tapscott and read Paradigm Shift, a fabulous book. I think the firm he was with was called something like DMR Consulting, an interesting Canadian outfit. That’s when I fell in love with what Ken Ohmae described as the Borderless World. That’s when I really got into the works of W Brian Arthur.

More influenced by Dr Arthur’s work than anything else, overlaid on my childhood and education, I began to view economies the same way I viewed companies, a network of smaller organisations trading with each other. That view led me to observing the way companies did business with each other through different lenses, applying personal, often warped, interpretations of transaction cost theory to the whole network of companies.

It was a theme that had already been influenced by my exposure to EDI and SITPRO in the early 1980s; it was a theme that continued throughout my time in capital markets; it was a theme I continued to see elsewhere, in other industry sectors, as when Covisint was formed.

The theme was simple. What causes friction between companies in a market? How can that friction be reduced or removed altogether? What can be done with the resources that are freed up by removal of the friction? It may sound boring to many of you, but I enjoyed thinking about it and talking to friends and colleagues about it. Most of the time, in a post-trade world, frictions are caused by “reference data” mismatches: names, addresses, that sort of thing. Low-volatility data are incredibly important in capital markets; vast sums of money are spent in seeking to keep them accurate and up-to-date; and yet errors related to such data continue to be immense sources of friction within that trading environment.

So when I moved to Salesforce.com, I was fascinated to hear about the existence of what would soon become data.com.

Since joining the company, I’ve had the opportunity to watch the Social Enterprise concept emerge and take form; how important it was to connect customers and distribution and supply chain and staff, how an ecosystem of companies would evolve as a result, how this was really a fractal representation of the market and the global economy.

In the past, much of my thinking about this was in a post-trade context. Since the middle of 2010, I’ve been working on a book on Designing For Loss Of Control, and for the last year or so, I’ve been thinking about all this from a pre-trade perspective. What makes it difficult for companies to agree to trade with each other? What would happen if this barrier, this friction, was removed? How would we go about removing the friction?

Probably influenced by my time in capital markets, and probably underpinned by the environment I grew up in, I started thinking of pre-contract frictions as “mismatches” of some sort of other, sophisticated versions of what Air India faced when dealing with the family business. Long one thing, short another, willing to trade only if a way could be found. Again, influenced by capital markets and trading terminology, I kept seeing all this as flows, and as barriers to flow. This whole mindset was reinforced by repeated exposure to the research of John Hagel, John Seely Brown and Lang Davison, in The Big Shift and, prior to that, The Only Sustainable Edge. [And even before that, I felt the same sense and imagery of flow while reading JSB and Paul Duguid on The Social Life Of Information]. How could labour productivity have doubled since 1965 while return on assets dropped precipitously? And would the stocks-to-flows shift reverse that? If so why?

Influenced by all this, I began to visualise the possibility of radical changes in how companies contracted with each other, how risk was transferred, how gains and losses were crystallised. I began to visualise API-like structures connecting firms together, with each pair of connections choosing the best “currency” to execute the trade in, something that happened to suit both sides, some sort of barter 2.0. [Yes, I know that our systems of accounting and valuing what we do are way incapable of dealing with all this; but then some would say they appear to be way incapable of dealing with “normal” business today….] If you contracted with a haulage firm, the measure of success would be in volume of goods carried over distance; with a telco, it might be new customers gained; and so on. Some way of having a shared risk and reward system, such that both parties got paid out only when successful against some commonly agreed measure or baseline.

A part of me gave up on that thought stream, thinking that it would be too complex to agree the terms….. friction in the contracting process would not be reduced unless it was simple to agree the currency and the baseline, and unless it was difficult to game or subvert.

That remained the case until I came across the work of Geoffrey West on cities. How some things experienced superlinearity in comparison to population, while others had sublinear relationships. I had the chance to talk to him at TED Global last year, and understood he was driving the research into the corporate world as well.

And that made me think. For each company-pair, if we could identify something desirable, something that had a simple superlinear relationship to something else that was easy to measure and hard to game, we could simplify the contracting process and de-risk it for both sides.

All this stems from a sense that the way firms contract with each other today is a static stocks-based view of the world. That the world of the cloud is radically different, flexible, elastic, dynamic. That as companies continue to connect with their customers and supply chain, as trust is created through transparency, as information flows faster and faster, as low-volatility data becomes more reliable, we’re going to see new forms of contracting. And new forms of currency. In a typically William-Gibsonian manner, this is happening already.

The social enterprise will accelerate all this. It’s about flow. Not just in the Hagel-Seely Brown-Davison sense. But also in the Mihaly Czikszentmihalyi sense.

26 thoughts on “Thinking about the Social Enterprise and Flow”

We surely need a borderless world! You are spot on in saying that eliminating friction is key for improving flow and hence more efficient world.

With your Post Trade thought:

On Data:
Data is surely a major cause of friction not just across the network but even within the nodes(imagine within any large m&a driven enterprise 10 Golden Client Data repositories exist let alone additional Client Data sets within Apps that are do not connect real time with these Client Data repos). Clearly the Enterprise of the Future needs a different solution question almost always is. Can we just flush the Enterprise? No, we always need Legacy compatibility and that is what keeps us from attaining a truly friction-less world. At some level this is similar to the challenge of near term versus long term dilemma that everyone faces.

Can a Silver Data Bullet alone solve this problem of friction? To some extent yes, especially if there is a nominal unit of data(or information?). Further, more it would be a universal adoption of that Standard or a Universal method of Interop(Context and Content Translation) that can in some way dynamically and automatically synchronize itself with changes within network nodes and across the network.).

Other likely causes of Friction:

a) Structures: It could be rigidity of Structures(Organizational, Demographic, Network, Economic, Market, etc.) themselves which lead to arbitrage opportunities that fuel markets and trade. A truly fluid enterprise and network would be able to Transform itself much faster to meet the future which is not possible with rigidity of the structure and speed of change of policy and regulation that binds or specifies that structure.

b) Size: If a body is larger(more employees) its mass would create more friction. I was told once by a dear friend who was told by a billionaire who runs a very large company that Organizations become inefficient beyond 800 people. I am guessing he mean’t friction grows like entropy with inadequate control levers beyond that point. More so in cases of inorganic growth.

With your Pre-Trade thought:

a) Connections: Organizations constantly build new connections and shed old connections (across the 9 elements, there could be more) hence whatever the currency of contract it needs to be rapidly discovered and valued.

b) Superlinearity wrt to Population: Utilitization which can be thought of as reverse Maslow surely makes some products more Superlinear.

c) New Currencies and Contracts would surely need a standard to which they show a strong correlation however if the standards is a peer (company to company) standard it would be easier to game as compared to a market standard (deregulated and determined by net supply and demand of things that show superlinearity or sublinearity)

Love this post JP! Did not know you has this EDI/Covisint background. Anyway, me too big fan Jhagel, Geoffrey West, Brian Arthur. I love how you squeeze in Mihaly Czikszentmihalyi at the end, as i agree that organization starts more and more looking like an organism in search for flow. If you push the idea, you could add Maslow, as the organization is probably also looking for self-esteem in all its nodes (its people). Even pushing it further and beyond self esteem, a similar flow “dynamic” is also embedded in Don Becks “Spiral Dynamics”. After most companies have gone to the max of juice they can get out of Lean, SixSigma, etc the next area of competitive differentiation is in the higher layers of Spiral Dynamics, more or less the space of relationships, the space the Jerry Michalski’s REXpedition is exploring. Hmmm.. maybe i should make a blog post of my comment ? ;-)

Companies seem to get carried away with long term contacts that due to duration and shifting alliances end up turning sour. The best you can hope for, is both parties end up feeling equally screwed, my mentor told me.

@aditya I agree with you on the market standard bit, I did not mean there should be opaque standards for every bilateral pair. But the pairs should choose the appropriate “currency” from a small number, probably less than 50. When it comes to Maslow, I’m more of a fan of Nohria and Lawrence and their 4-driver model, go take a look if you’re unfamiliar with it. Man has four drivers. The drive to acquire, to defend, to learn and to bond. These operate in parallel rather than in sequence. At any given time one driver can overshadow the rest. And on data… while there is no silver bullet, we do have to take that friction out, it is the 21st century after all. When it comes to arbitrage opportunities, these are caused by the mismatch, which in turn come from rigid contracting and accounting structures. More later.

Great post JP.
I am thinking for a while about what ‘co-creation of value’ would mean, in a SD-logic perspective, when ‘value’ hasn’t a clear shared understanding.

In that sense, transactions should occur on an agreed expectation-outcome level between contractors. This is, by large, what is otherwise defined as a market. But as expectations might differ from one individual to another, which rules could define such markets? How could currencies represent such a type of agreement? Could they be defined inside communities instead of arbitrary economical entities?

I guess that some sort of subsidiarity, an allowance to redefine currency value according to granularity (at local or individual level…), might help in solving this. But to allow companies to fit into such a system, they would have to be grounded in the physical – not only financial – world, thus be more closely related to geographical and political landscapes.
Sorry for the musing, but here are some of the thoughts that your post triggered.

@Thierry I think the grounding in context, in the physical and geographical and economic and political is an imperative, without it we will continue to have the mismatch problems we currently have. To make that work, as you say, some sort of subsidiarity will be needed, the ability to contract at more granular levels. I thought this was too hard until I saw something in West’s work that made it seem more possible.

With regard to expectations between individuals, I am currently wrestling with the dual sets of expectations that arise, individual to individual and individual-within-corporation to individual-within-corporation, the risk profiles are different.

JP, thanks for another outstanding post. The timing for me is particularly good. I am taking an Enterprise Social Media course as part of my MSc in Information Management at Syracuse University. The course is taught by Dr Anthony Rotolo (@rotolo). I just completed reading a book by @chrisbrogan and @julien smith called Trust Agents. They proposed similar themes to yours about friction, community, trust. While the book doesn’t speak specifically about “flow” the proposed characteristics would generate it:

1. Make your own game – pick something and do it well
2. Be one of us – join or create a community
3. The Archimedes Effect – leverage your environment
4. Agent Zero – be at the centre of wide networks
5. Human Artist – be genuine with people
6. Build an Army – empower others to take up the work

Some of my thinking about social business/enterprises puts the actors at the centre instead of the policies and processes. Perhaps your focus on company pairs can take a similar approach. If we have companies (this is really simplified) be more open and tell a community about what they are doing and perhaps need then matches may be found with other companies who are equally social. Finding the medium to do this and changing corporate culture seem to be the big challenges.

@leo thanks. I know @ChrisBrogan and Trust Agents is an excellent book. See my latest post on improvisation, you will see how I support the actor-based approach. But that means they have to have “ingredients” that they understand technically and intuitively, which is where I was going with this post.

@JP / Leo – It is very interesting that you should bring up an Actors based approach. A conversation that is developing on LinkedIn in the Corporate Strategy Board on Porters Model. Watch here: http://www.youtube.com/watch?v=mYF2_FBCvXw where Porter says exactly what you/Chris have proposed, if Rivals decide to pick their niche or how they create value then the ecosystem develops. Interestingly, it makes me think about evolution and how bodily functions evolved over time. The question always is that no organ can rush to take its place if the Heart stops beating or the Kidney’s go awry. Would love to read more on your thoughts on this.

@JP – Agree Maslow’s approach was proposed as linear and that is possibly the better way to read it. Have been trying to reconcile Maslow, Nohria and Pinker for some time to come up with a better understanding of this. What are your thoughts? Eagerly await more on friction and data.

Indeed, this was too much for a Saturday night. It’s probably too much for me even on a Monday (here in Southern California) afternoon. If I understand you correctly, a bit of a leap as I am neither an economic theorist nor a person who has worked in capital markets, you are addressing some elements of systems theory as my friends, the late Russell Ackofft and John Pourdehnad might see them.

I have long thought, at least with respect to the trading of data and information, companies could run far more effectively if they found ways to share what they knew that promised to increase their ability to truly collaborate on the products they were participating in producing, my experience being in the manufacture of rocket engines and large engineering products.

I experienced a situation where the flow of information even internally (between Design, Engineering, and Manufacturing) was so lethargic or contentious it severely impacted schedules, costing who knows how much in missed opportunities and rework. I made a couple of attempts to facilitate the flow of information and was met with either indifference or hostility.

I’m a great believer, as I think you know, in the social enterprise and I’m a strong supporter of using systems thinking to understand relationships. I believe social tools will ultimately flatten organizational structure by democratizing data, information, and knowledge . . . and it will work best when companies can trade the same across organizational boundaries when warranted.

Am I even scratching the surface of what you’re getting at in this post, or have I missed it entirely?

@Rick every now and then I want to go back to an OR mindset and resurrect the work of Stafford Beer. but for now where I’m stuck at is the crossroads between John Hagel/JSB and Geoffrey West. I want to take what they’re doing and extend it. Which means spending the time immersing myself in what they’ve found out.

What are your thoughts on personal ego as a driver of innovation? Ego of the kind manifested by Oracle’s Ellison and SAP’s Blattner and how that affects innovations underway at their respective companies.

JP… Most interesting. In my experience, the greatest source of friction between trading entities is the mindset of the senior principals who established the prevailing policies, sanction the operating models and punish the deviants.

To overcome these barriers, perhaps the most effective (and efficient?) approach is to operate at the lowest common denominator for information exchange (e.g. use social models to share very basic operational data). Then rely on viral spread and adoption to establish a massive platform of trust on which new operating models can be introduced, modified and exploited at a very rapid rate. Technology now allows us to accelerate such an approach, exhibiting characteristics of a biological ‘survival of the fittest’ ecosystem combined with hyper efficient electronic market making.

Too many organisations plan for the future by creating improved versions of what was done in the past, hopefully avoiding prior mistakes. I prefer learning from the past to inform and identify what hasn’t yet been tried… As Esther D would say “Always make new mistakes!”